Around 200 registered investment advisors face risk of licence cancellation

Industry asks Sebi to ease entry barriers for investment advisors, reduce compliance burden

Nearly 200 registered investment advisors (RIAs) face the risk of license cancellation for failing to register with the Investment Adviser Administration and Supervision Body (IAASB).

“The cancellation of the registration in these cases requires initiation of separate proceedings for each of the 200 intermediaries and these proceedings may be dealt with by multiple designated authorities and hence entail considerable resources though the violations are obvious and undeniable,” said Sebi in a proposal paper.

According to industry officials, these RIAs did not register with IAASB as they may have stopped their business or advising services. They highlighted that owing to stricter eligibility requirements for RIAs, many have found it difficult to sustain.

Industry participants said earlier the Securities and Exchange Board of India (Sebi) had sent letters to these defunct RIAs for initiating proceedings and even removed names from certain lists. However, a cancellation of a license requires longer proceedings.

The market regulator is mulling initiating “summary proceedings”—a faster and more efficient way to deal with cases where violations are either obvious or not denied by the regulated entity.

According to industry estimates, there are about 1,300 RIAs.

“The environment is difficult for RIAs and the entry barriers are high. Writing two exams with negative marking every three years to keep the license alive is one of the biggest impediments. There are too many compliance requirements making it tedious to run the practice. However, the regulator is constantly in discussion to make it easier to enter and continue the practices. We hope things will improve more,” said Renu Maheshwari, co-founder, Finscholarz.

RIAs have approached Sebi to ease some of the eligibility requirements, including the exams.

For the continuance of their registration, the RIAs need to obtain NISM Series-X-A and X-B certification (level 1 and level 2, respectively) which need to be refreshed every three years.

The role of RIAs and the registration has come into focus after Sebi’s stringent measures to curb misinformation, manipulation, or advice by financial influencers.

“If the regulations were eased a little bit then registrations would increase. If there can be an option of continuing education rather than an exam for people who have been in the business for long then it would be less onerous,” said Lovaii Navlakhi, managing director and chief executive officer of International Money Matters and the chairperson of Association of RIAs (ARIA), where 300 RIAs were empanelled.

He added the association is conducting sessions to educate the registration process and regulations for advisors.

Several RIAs said they may not opt for the fee-collection mechanism to be offered from exchanges as it would require a lot of work in investor awareness and re-alignment of their payment process.

Earlier, the market regulator raised red flags on certain portfolio managers who were unreachable. Sebi’s approach to RIAs may also emerge from such concerns.